Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

Regular AAC (Asset Allocation Composite) portfolios are always rebalanced on the first trading day of a month. 

For regular SAA and TAA portfolios, the next re-balance will be on Monday, December 23, 2019. You can also find the re-balance calendar for 2019 on ‘Dashboard‘ page once you log in. Please note that we are phasing out this rebalance calendar. 

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Please note that we now list the next re-balance date on every portfolio page.

Core ETFs or Core Mutual Funds Portfolios

Last week, we introduced our AAC (Asset Allocation Composite) strategy. For brokerage investment accounts, we now advocate using ETFs for average investors. In this newsletter, we want to have some in-depth discussion on how to use mutual fund based portfolios if desired. 

Mutual fund based portfolios

There are two reasons for some investors to prefer using mutual fund based portfolios. The first is that mutual funds are much simpler to trade: you don’t need to be concern about intra-day prices as their prices are determined once a day, after market close. The other reason is that MyPlanIQ’s excellent total return bond mutual fund based portfolios have much longer return history and there are more good total return bond mutual funds (those that have won Morningstar’s manager of the year award) to choose from than ETFs. We have long monitored the progress of total return bond ETFs in the market. So far, we can only use three total return bond ETFs: PIMCO total return bond ETF (BOND), Doubleline total return bond ETF (TOTL) and Fidelity total return bond (FBND). So in the candidate bond fund list, we have to resort to using some index ETFs to complement. 

Though we have seen that ETF based bond portfolios are now more comparable with a total return bond mutual fund portfolio, as discussed in September 30, 2019: Boosting Bond ETF Portfolio’s Return With Muni Bond ETFs, some investors are still not comfortable with their short history and other issues such as liquidity (hard to get a fair price). Thus, it’s very understandable for them to stick to total return bond mutual fund portfolios. 

On the other hand, on the stock (equity) side, major index ETFs have grown to a point where they are able to match or even outperform their index mutual fund counterparts. Furthermore, many brokerages (including some major ones such as Merrill Edge and even Schwab) still do not carry ultra low cost index stock mutual funds such as those from Vanguard. For example, in Schwab, there are only 12 no load and no transaction fee index funds and the least expensive one carries 0.76% expense ratio, far larger than Vanguard REIT index fund (VGSLX)’s 0.12% or Vanguard REIT ETF VNQ’s 0.12% or even Schwab’s own REIT ETF (SCHH)’s 0.07%:

Combining stock ETF portfolio and bond mutual fund portfolio

So the best combination seems to have a portfolio that allocates stock portion to MPIQ Core ETFs portfolio and allocates bond portion to a brokerage specific total return bond portfolio. The stock and bond portions are rebalanced annually.  Here is the hybrid stock ETFs and bond mutual funds portfolio Stock ETFs And Bond Mutual Funds Moderate Schwab that consists of two portfolios: 

Asset Subportfolio Percentage
Stocks P_73815 (MPIQ Core ETFs AAC All Stocks) 60%
Bonds P_73808 (Schwab Total Return Bond Plus) 40%
Portfolio Performance Comparison (as of 11/18/2019):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR Since 2/28/15 AR 5Yr AR 10Yr AR 15Yr AR
Stock ETFs And Bond Mutual Funds Moderate Schwab 17.7% 13.7% 9.9% 6.9% 7.4% 9.4% 9.0%
MPIQ Core ETFs Asset Allocation Composite Moderate 18.7% 14.9% 9.9% 6.6% 7.0% 8.2% 7.8%
VBINX (Vanguard Balanced Index Inv) 18.9% 13.9% 10.0% 7.3% 7.6% 9.3% 7.3%
DGSIX (DFA Global Allocation 60/40 I) 14.5% 9.2% 7.5% 5.3% 5.5% 7.2% 6.1%

Year by year detailed comparison >>

Here we also compare the Annualized Return (AR) since 2/18/2015 because that’s the day when most bond ETFs have data. We can see that the MPIQ Core ETFs have some very comparable returns against the hybrid portfolio. Nevertheless, the hybrid portfolio has outperformed VBINX (60% US stocks/40% bonds) or DGSIX (DFA’s 60% global stocks/40% bonds) index funds by some big margins for the past 15 years. 

The following chart shows the comparison since 2001 for the hybrid portfolio vs. VBINX and VFINX:

The main issue here is that not all of good total return bond funds are available as no load and no transaction fee funds in a brokerage. So you have to choose a brokerage specific total return bond mutual fund portfolio. 

The other issue is that it’s a bit confusing to have an account that holds both ETFs and mutual funds. Of course you can open two accounts, each of which holds separate ETFs and mutual funds. But that again makes things more complicated. 

Because of the above reason, we don’t advocate using such a hybrid portfolio for average investors. We believe for an average investor or a new investor, it’s better to simply use MPIQ Core ETFs Asset Allocation Composite Moderate or a customized one with your own risk profile. 

For those experienced investors who are willing to deal with the above issues, we list out such a hybrid portfolio for Schwab on our Brokerage Investors page. For other major brokerages such as Fidelity, Etrade etc.. you can find total return bond mutual fund portfolios on the same page to substitute the Schwab one. 

All mutual fund portfolios

Of course, if you really insist, you can construct an all mutual fund portfolio that has index or other diversified funds for stocks and using total return bond funds for bonds. As we detailed in the previous newsletter, we did show an all mutual fund moderate risk portfolio that will serve as our benchmark going forward. Here is the comparison of the above hybrid one and the all mutual fund one: 

Portfolio Performance Comparison (as of 11/18/2019):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 15Yr AR
Stock ETFs And Bond Mutual Funds Moderate Schwab 17.7% 13.7% 9.9% 7.4% 9.4% 9.0%
MPIQ Core Asset Mutual Funds Asset Allocation Composite Moderate 17.0% 13.1% 9.5% 7.1% 9.6% 10.1%


  • The hybrid one is very comparable for the past 1, 3 and 5 years. It slightly underperformed the all mutual fund one for the past 10 years. 
  • However, it underperformed by 1.1% for the past 15 years. The reason is that Vanguard stock ETFs used in this hybrid portfolios, though have longer history, are still not long enough. For example, VEA started on 7/26/2007, a little bit longer than 10 years. VWO started on 3/11/2005, again less than 15 years. VNQ started on 9/30/2004, just barely 15 years. So we can claim that 15 year history is not meaningful for the hybrid one. 
In conclusion, more experienced and active investors can still rely on an all mutual fund portfolio or even some mix of ETFs and mutual funds (for example, since Schwab’s REIT ETF SCHH has the lowest expense ratio, you can use it while still relying on other Schwab mutual funds such as its total stock index mutual funds). There are some more variations one can play with to squeeze out a bit more returns. On the other hand, for an average investor, it might not be worth the hassle to deal with all of these little details (some of them are brokerage specific). For these investors, a simple ETF portfolio such as MPIQ Core ETFs Asset Allocation Composite Moderate is good enough to begin with. That’s exactly what we are now proposing. 

Market overview

As more than 96% of the companies in the S&P 500 have reported actual earnings results for Q3 2019, the earnings decline of -2.2% so far continues to be better than expected. Other favorable factors for stocks include a strong seasonal effect at the year end and possible (albeit a watered down) trade deal with China. At any rate, large stocks are hanging around record levels while other mid and small cap stocks are supportive. Considering the extended and expensive stock and bond markets, we still call for staying the course while keeping an eye on any sudden risk and/or market trend change. 

For more detailed asset trend scores, please refer to 360° Market Overview

In terms of investments, even after the recent retreat, U.S. stock valuation is still at a historically high level and a bigger correction is still waiting to happen. It is thus not a good time to take excessive risk. However, we remain optimistic about U.S. economy in the long term and believe much better investment opportunities will arise in the future. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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